Bureau of Local Government Finance Opinion

September 18, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Dexter Zeno A. S. Pascua PASCUA & TORREFRANCA LAW FIRM Unit 203, 2/F La Cima Building McArthur Highway, Matina Davao City Sir : This refers to your letter dated 22 August 2013, addressed to Ms. HYGINA O. MACASILHIG, OIC-Asst. Municipal Treasurer, Mabini, Compostela Valley, copy furnished this Bureau, relative to the amount of business tax paid by your client, Tagnanan CARP Beneficiaries Cooperative (TCBC for brevity). SCaDAE In a letter dated 26 April 2013, TCBC requested that the payment amounting to P148,000.00, representing local business tax (LBT) paid for the 1st quarter of 2013, be instead applied to the required fees for regulation, inspection and surveillance which the cooperative is obliged to pay for the year 2013. In view of the herein issue, this Bureau is compelled to make a clarification on certain matters for information and proper guidance of all concerned. 1) BLGF Memorandum Circulars BLGF MEMORANDUM CIRCULAR NO. 08-2013 dated 09 February 2013, was issued modifying BLGF MEMORANDUM CIRCULAR NO. 31-2009 dated 07 October 2009 in view of the persistent queries both from taxpayers (cooperatives) and LGU officials seeking clarification on the basis of the imposition embodied in pertinent portion of said BLGF-MC No. 31-2009, quoted as follows: ". . ., cooperatives transacting business with both members and non-members are required to obtain or secure a Mayor's permit, which is implemented under the police powers of a local government unit to protect public interest and in furtherance of the general welfare clause enshrined both in the Constitution and the Local Government Code [Section 16 (General Welfare Clause)], and pay the corresponding fee of not exceeding One Thousand Pesos (P1,000.00), which commensurate to the cost of regulation, inspection and surveillance of the operation of its business . Likewise, said cooperatives shall secure a Community Tax Certificate (CTC) and pay the basic tax of Five Hundred Pesos (P500.00) as a juridical entity ." (Emphasis supplied) To resolve the issue, this Bureau made several inquiries with the Office of then Senator Juan Miguel Zubiri requesting for a copy of the Minutes of the Meetings providing for the imposition of regulatory fee and Community Tax on cooperatives duly registered with the Cooperative Development Authority (CDA). However, the effort to secure documentation to support BLGF MC 31-2009 resulted in futility with the resignation of Senator Zubiri from the Senate still failing to secure a copy of the Minutes. Still, the issue questioning the basis of the P1,000.00 regulatory fee and the P500.00 Community Tax Certificate persisted so that this Bureau, having no basis whatsoever to show and back-up the validity of the impositions in said BLGF MC No. 31-2009, issued BLGF MC No. 08-2012 modifying the pertinent portions, which reads: DaCEIc ". . ., cooperatives transacting business with both members and non-members are required to obtain or secure a Mayor's permit and other regulatory permits, which is implemented under the police powers of a local government unit to protect public interest and in furtherance of the general welfare clause enshrined both in the Constitution and the Local Government Code [Section 16 (General Welfare Clause)], and pay the corresponding amounts of fees and charges for such permits that a local government unit may have imposed under its duly-enacted tax ordinance, which shall commensurate to the cost of regulation, inspection and surveillance of the operations of their businesses." However, because of some comments on the effect of BLGF MC No. 08-2012, the House Committee on Cooperatives Development, chaired by Congressman Jose Ping-ay conducted an inquiry which resulted to a Joint Congressional Oversight Committee on Cooperative (JCOCC) inquiry-meeting held on June 6, 2012 with the main purpose of resolving the issue. As a result of the JCOCC inquiry, RESOLUTION NO. 01-2012, was adopted on June 6, 2012 directing as follows: ". . ., the Bureau of Local Government Finance IS HEREBY DIRECTED TO REPEAL Memorandum Circular No. 08-2012 dated February 9, 2012 issued by the BLGF OIC-Executive Director Atty. Salvador M. del Castillo addressed to all Regional Director for Local Government Finance; Metropolitan Manila Treasurers; City, Provincial and Municipal Treasurers; and others concerned. Re: Clarification on the Exemption of Cooperatives from the payment of Local Taxes, Fees and Charges embodied in BLGF MEMORANDUM CIRCULAR NO. 31-2009 dated October 7, 2009 and in relation to R.A. No. 7160 otherwise known as the Local Government Code (LGC) of 1991, specifically Section 133(n) on the ground that it is inconsistent with the provisions of two (2) aforementioned memorandum circulars (BLGF Memorandum Circular No. 31-2009 dated October 7, 2009 and DILG Memorandum Circular No. 2010-120 dated October 20, 2010) and that it is not compliant with the requirements under Section (sic) 138 of the Philippine Cooperative Code of 2008." In view therefor, the pertinent portion of BLGF MC No. 31-2009 above-quoted was reinstituted and made it effective again as far as cooperatives registered with the CDA are concerned. Stated otherwise, said cooperatives are liable only to the P1,000.00 regulatory fee, which commensurate to the cost of regulation, inspection and surveillance of the operation of its business, and the P500.00 Community Tax Certificate. DHITSc In addition, said cooperatives are still liable to the payment of service charges or rentals for the use of property and equipment or public utilities owned by the local government such as charges for actual water consumption, electric power, toll fees of the use of public road and bridges and the like. 2) Application of the Paid Amount of P148,000.00 to Regulatory Fees Imposed by the Local Government With regards to the request for the application of the amount " erroneously " paid by TCBC or collected by the Municipality of Mabini, the applicable provision of law is Article 286 of the Implementing Rules and Regulations (IRR), implementing Section 196 of the Local Government Code (LGC) of 1991, quoted hereunder: " Article 286 . Claim for Refund or Tax Credit. All taxpayers entitled to a refund or tax credit under this Rule shall file with the local treasurer a claim in writing duly supported by evidence or payment ( e.g. , official receipts, tax clearance, and such other proof evidencing overpayment) within two (2) years from payment of the tax, fee or charge. No case or proceeding shall be entertained in any court without this claim in writing, and after the expiration of two (2) years from the date of payment of such tax, fee or charge, or from the date the taxpayer is entitled to a refund or tax credit. "The tax credit granted a taxpayer shall not be refundable in cash but shall only be applied to future tax obligations of the same taxpayer for the same business. If a taxpayer has paid in full the tax due for the entire year and he shall have no other tax obligation payable to the LGU concerned during the year, his tax credits, if any, shall be applied in full during the first quarter of the next calendar year on the tax due from him for the same business of said calendar year. " Any unapplied balance of the tax credit shall be refunded in cash in the event that he terminates operations of the business involved within the locality ." (Underlining supplied) From the abovequoted provision of the IRR of the LGC, it is clear that the claim for refund or tax credit shall be filed with the local treasurer's office in writing supported by the evidence of payment, within two (2) years from payment of tax, fee or charge. The law also provides that the claim " shall not be refundable in cash but shall only be applied to future tax obligations of the same taxpayer for the same business ", which means that if the refund and/or tax credit is for local business tax, the same shall be applied to the same nature of obligation which TCBC may incur in the future. Considering however, the unqualified exemption of TCBC from local business taxes and therefore, will no longer incur future obligation of the same nature, the same may be refunded in cash. In this connection, to apply the said amount to regulatory fee liability of TCBC would be tantamount to an off-setting scheme which is not in conformity with the provision of the LGC. It is hoped that this will help clarify matters. AcCTaD Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director